Chapter 1 Notes

Moral principles and values applied to social behavior. Ethics has to do with the fairness, justness, rightness, or wrongness of an action.

Ethics in a business context; a consensus of what constitutes right or wrong behavior in the world of business and the application of moral principles to situations that arise in a business setting.

A process by which a firm determines how to make its greatest profit.

• It adds a corporate citizen aspect to the profit maximization model. 
• - Profits, People, and the Planet

The idea that investors and others should consider not only corporate profits, but also the corporation’s impact on people and on the planet in assessing the firm. (The bottom line is people, planet, and profits.)

• 1. The legal implications of each decision.
• 2. The public relations impact.
• 3. The safety risks for consumers and employees.
• 4. The financial implications.

• In the short run, a company may increase its profits by continuing to sell a product even though it knows that the product is defective.
• An overemphasis on short-term profit maximization is the most common reason that ethical problems occur in business.

In the long run, though, because of lawsuits, large settlements, and bad publicity, such unethical conduct will cause profits to suffer. Thus, business ethics is consistent only with long-run profit maximization.

The minimum degree of ethical behavior expected of a business firm, which is usually defined as compliance with the law.

A reasoning process in which an individual links his or her moral convictions or ethical standards to the particular situation at hand.

duty-based ethics and outcome-based ethics

An ethical philosophy rooted in the idea that every person has certain duties to others, including both humans and the planet. Those duties may be derived from religious principles or from other philosophical reasoning.

An ethical philosophy that focuses on the impacts of a decision on society or on key stakeholders.

The principle that human beings have certain fundamental rights (to life, freedom, and the pursuit of happiness, for example). A key factor in determining whether a business decision is ethical under this theory is how that decision affects the rights of others, such as employees, consumers, suppliers, and the community.

• Kant believed that human beings are qualitatively different from other physical objects and are endowed with moral integrity and the capacity to reason and conduct their affairs rationally.
• People Are Not a Means to an End

A concept developed by the philosopher Immanuel Kant as an ethical guideline for behavior. In deciding whether an action is right or wrong, or desirable or undesirable, a person should evaluate the action in terms of what would happen if everybody else in the same situation, or category, acted the same way.

• An approach to ethical reasoning in which ethically correct behavior is related to an evaluation of the consequences of a given action on those who will be affected by it. In utilitarian reasoning, a “good” decision is one that results in the greatest good for the greatest number of people affected by the decision.
• (Outcome based ethics)

A decision-making technique that involves weighing the costs of a given action against the benefits of the action.

• 1. A determination of which individuals will be affected by the action in question.
• 2. A cost-benefit analysis, which involves an assessment of the negative and positive effects of alternative actions on these individuals.
• 3. A choice among alternative actions that will produce maximum societal utility (the greatest positive net benefits for the greatest number of individuals).

The concept that corporations can and should act ethically, and be accountable to society for their actions.

Because business controls so much of the wealth and power in this country, business has a responsibility to use that wealth and power in socially beneficial ways. Thus, the social aspect requires that corporations demonstrate that they are promoting goals that society deems worthwhile and are moving toward solutions to social problems.

Groups, other than the company’s shareholders, that are affected by corporate decisions. Stakeholders include employees, customers, creditors, suppliers, and the community in which the corporation operates.

Organizing the ethical concerns and issues and approaching them systematically can help a businessperson eliminate various alternatives and identify the strengths and weaknesses of the remaining alternatives

• 1. Inquiry
• 2. Discussion
• 3. Decision
• 4. Justification
• 5. Evaluation

First, the decision maker must understand the problem. This step involves identifying the parties involved (the stakeholders) and collecting the relevant facts. Once the ethical problem or problems are clarified, the decision maker lists any relevant legal and ethical principles that will guide the decision.

n this step, the decision maker lists possible actions. The ultimate goals for the decision are determined, and each option is evaluated using the laws and ethical principles listed in Step 1.

In this step, those participating in the decision making work together to craft a consensus decision or consensus plan of action for the corporation.

In this step, the decision maker articulates the reasons for the proposed action or series of actions. Generally, these reasons should come from the analysis done in Step 3. This step essentially results in documentation to be shared with stakeholders explaining why the proposal is an ethical solution to the problem.

This final step occurs once the decision has been made and implemented. The solution should be analyzed to determine if it was effective. The results of this evaluation may be used in making future decisions.

• prohibits U.S. businesspersons from bribing foreign officials to secure beneficial contracts.
• The first part of the FCPA applies to all U.S. companies and their directors, officers, shareholders, employees, and agents. This part prohibits the bribery of most officials of foreign governments if the purpose of the payment is to motivate the official to act in his or her official capacity to provide business opportunities.
• The second part of the FCPA is directed toward accountants.All companies must keep detailed records that “accurately and fairly” reflect their financial activities. Their accounting systems must provide “reasonable assurance” that all transactions entered into by the companies are accounted for and legal. These requirements assist in detecting illegal bribes. The FCPA prohibits any person from making false statements to accountants or false entries in any record or account.

The FCPA does not prohibit payments made to minor officials whose duties are ministerial. A ministerial action is a routine activity, such as the processing of paperwork, with little or no discretion involved in the action. These payments are often referred to as “grease,” or facilitating payments. They are meant to accelerate the performance of administrative services that might otherwise be carried out at a slow pace. Thus, for instance, if a firm makes a payment to a minor official to speed up an import licensing process, the firm has not violated the FCPA.